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A Response to a Proposal for a Defensive Patent License (DPL)

Jennifer Urban and Jason Schultz have proposed a Defensive Patent License (the “Original DPL”). The Original DPL is essentially a standardized, networked, non-negotiated, portfolio-wide, royalty-free, patent cross license. The Original DPL takes advantage of the fact that certain companies and many individuals are primarily interested in pursuing patents for defensive purposes, e.g., to achieve freedom to operate.

In this article, we focus on the perspective of a substantial portfolio company (an “SPC”) and we suggest modifications to the Original DPL that may make SPCs more willing to participate in it. After a brief summary of the Original DPL, we describe the advantages of a robust DPL if successful – i.e., if the DPL is reasonably widely adopted, at least by one industry. We then describe our suggested modifications making reference to a model Modified DPL; a primary suggested modification provides that, if a member withdraws, the withdrawing member’s license is automatically revoked, both inbound and outbound, at the end of a withdrawal notice period. We discuss potential criticisms of the Original DPL and Modified DPL and end with a brief comparison of the Modified DPL to the standardized, networked, royalty-free, patent license provided by the Open Invention Network.

Appendix I provides a model Modified DPL that reflects our suggested modifications. Appendix II includes some additional/related ideas for potential further modification/supplementation of the DPL idea that are not reflected in the model Modified DPL set forth in Appendix I. For example, in modification 10 of Appendix II we note that instead of (or as a precursor to) the Modified DPL, companies could join a License On Transfer (LOT) agreement. Under the terms of the LOT agreement, every LOT User agrees that when it transfers a patent, the transferred patent automatically becomes licensed to the other LOT Users existing at the time of the transfer, except (i) a transfer that is part of a legitimate spin out or of a Change of Control to a Non-Assertion Entity or (ii) a transfer to another LOT User. The license would be subject to defensive termination. Such an agreement, i.e., a License On Transfer (LOT) agreement, would protect companies that sign the agreement from the extraction of patent rents by an entity (e.g., a non-practicing entity) to which the patent is sold. Appendix III provides a model LOT agreement.